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It's tax season again. As usual the Alternative Minimum Tax is hitting millions and millions of hard working Americans (especially in high state income states like NY, California, Maryland etc).
I "escaped the AMT" for the first time in 4 years. My AMT "hit" has been 4K, 7K, 10K. That's a lot of money to be throwing away. My brother's and sister's AMT liability are even higher than mine, in the $15-20K range each year (since they have 2-3 kids).
The only reason I escaped the AMT was because I moved from Maryland to Florida (no state income taxes).
I hope everyone is aware because the AMT will eventually hit everyone making at least $100K a year with 2 kids, house payment (property tax deduction) and state income taxes.
The issue with the AMT was it was never indexed for inflation. It was passed by the Democrats in the late 1960s because there were reports a few "wealthy people" had so many deductions that they literally zeroed out their federal income tax liability. So the Democrats designed the AMT to make wealthy people pay their fair of taxes.
Slick Willie Clinton (aka our 42nd President) actually raised the AMT rate when he first took office in 1993 (along with raising the top income tax brackets).
He had a bill on the table to completely do a phase out of the AMT in the late 1990's. He vetoed repealing the AMT.
It's no secret the AMT has become a major source of tax revenue collected by the federal government. Only the AMT was never intended to be part of budget projections. It was only meant to make sure people pay some taxes.
Sure we "patch" the AMT exemption almost every year but more and more middle class people will be caught in the AMT web in the future.
So don't you find it ironic that Democrats "tax" on the wealthy ending up becoming a tax on the middle class with the AMT.
What is bad is how people think they're paying extra tax just because tax preparers add the form (to collect an extra fee - "to make sure") when the form is not wanted or needed. The IRS auditor spends the time to remove the form, thereby slowing down processing.
The vast majority of people have others prepare their taxes, they're scared of the tax laws, they'd rather not "take a chance", even tho the complexity is no worse than a 5th or 6th grade word math problem. When the preparer gives the tax payer their copy of their return they see the AMT form and think they're paying an "extra AMT" when, in fact, they are not.
Bottom line, most people have no idea what they're looking at when looking at their completed tax returns.
What is bad is how people think they're paying extra tax just because tax preparers add the form (to collect an extra fee - "to make sure") when the form is not wanted or needed. The IRS auditor spends the time to remove the form, thereby slowing down processing.
The vast majority of people have others prepare their taxes, they're scared of the tax laws, they'd rather not "take a chance", even tho the complexity is no worse than a 5th or 6th grade word math problem. When the preparer gives the tax payer their copy of their return they see the AMT form and think they're paying an "extra AMT" when, in fact, they are not.
Bottom line, most people have no idea what they're looking at when looking at their completed tax returns.
Once you've been hit with the AMT, you will realize how unfair it is.
Let's see. I paid $12K in property taxes in 2008. Guess how much I get to write off? Zero. I paid around $18K in Maryland state income taxes. That's also zero deduction. It gets even worse if you have kids and you lose those exemptions.
Now I moved to Florida. Made roughly the same amount of income. But my overall taxes paid to the Feds is about $10K less than when I was in Maryland. I think most people would realize they getting hit with $10K extra in terms of taxes because of the AMT.
The AMT is a parallel tax system.
You are correct. Most people don't even know about the AMT. You have to fill out form a separate form. The AMT hit is the difference between what you normally would pay (on your 1040)vs. what the AMT would be.
But once you get hit with the AMT, it's very hard to get rid of it, unless you take a substantial pay cut, move to a no state income tax state like I did, or time your 4th quarter state income tax payments if you are on the border.
Each year the AMT sucks in more people as it was never indexed. Soon people making $25K per year will be paying AMT. The government will not give up revenue.
Well, to maybe complete the picture, after you DON'T get your personal exemptions or your state and local tax deductions or your medical or miscellaneous deductions or any home equity interest on non-home debt, you DO get any recapture of your Schedule A itemized deductions back and you then get to deduct a flat $70,950 if you are married filing jointly with an income up to $150K.
Basically, the AMT isn't hitting any actual middle-class taxpayers, but it does hit a number of folks who are at the higher ends of upper-middle class. Still, you'll have quite a comfortable lifestyle indeed before the AMT starts taking big chunks out of your pocket.
The reason people don't do away with the AMT is that it still performs the service it was enacted for -- keeping the really rich from hiding everything and paying almost no taxes at all. The next logical step would be to index the thing, but that would have highly adverse ten-year projection numbers associated with it. Politically easier just to do a fix for this year and keep pretending that you're not going to do a fix for next year or the year after that. It's the same situation with the Doc-Fix. Nobody in Congress intends to stab either doctors or upper-middle class taxpayers with the hits that current legislation call for, but revising the legislation would cost a trillion dollars or more in new debt over ten years, so there's not much incentive to do it and get saddled with those kinds of numbers.
.....So don't you find it ironic that Democrats "tax" on the wealthy ending up becoming a tax on the middle class with the AMT.
Yes, because their definition of "rich" is floating downward. And for any posters with specious arguments that it hasn't hit the "middle class" yet, it will be at your doorstep soon enough.
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